Trevor Manuel – Let fairness triumph over corporate profit
By Trevor Manuel
Can Ulysses bind himself again to the deck, having succumbed for so long to the sirens’ allure?
Global growth has slumped and its financing is in disarray. Once again the limits to institutional rationality are self-evident. It is not that we were not warned. The historical record repeats itself: confidence gives way to exuberance, panic is followed by decline, retrenchment precedes reconstruction. From Adam Smith’s defence of moral sentiment before economic self-interest to Debreu’s algebraic articulation of the informational requirements for a welfare-maximising equilibrium, economists have been clear that markets are incomplete and cannot be left to themselves.
Political economists since Thomas Hobbes and Adam Smith have understood that capitalism relies on state power to impose instrumental checks on greed and abuse of influence.
Concern about the sustainability of global macroeconomic trends has been a persistent theme in intelligent comment since the mid-1990s. There have been all-too-frequent reminders of the frailty of human rationality and vulnerability of financial institutions.
Yet for too long we have allowed an unexamined faith in market incentives to drive social regulatory imperatives into the shadows. The calculus of financial gain has overwhelmed the discipline of public purpose and accountability. Pursuit of corporate advantage has dominated promotion of competitive fairness.
The enormity of this hubris is staggering. We have grown accustomed to the idea that savings generated in the industrious poorest quarter of the world should continue to finance the excess consumption of the richest nations. We have grown accustomed to the fact that collective global action is hamstrung by institutional and diplomatic rigor mortis. We have grown accustomed to widening inequality in an era of unprecedented prosperity.
Can we now construct a shared vision of a different global economic order – a model that builds on the dynamic impetus of market forces while taming the influence of power and self-interest? Can we reconcile free enterprise and good governance? Can we construct a model that balances innovation and responsibility?
Such an order will need to recognise that the financial crisis cannot be unwound without addressing global trade imbalances. Absorption of resources will rise in China, consumption growth in the west has to moderate. And as trade policy is bound up with the global structure of wages, there is surely greater hope in raising living standards in China and flattening US earnings differentials than in volumetric boosts to bank credit. We need a shared commitment to resist protectionism, and to take the actions required to build more balanced trade relations and earnings patterns.
Such an order will need to confront the challenges of social security reform, which will in turn contribute to income stabilisation and institutional resilience of labour markets. China, for example, has to deal with the prospect of growing old before it grows rich. Institutional reforms in the savings and social security systems of several countries have brought both unwarranted complexity and increased vulnerability of the poor.
Such an order will surely involve re-examining the interface between the public and the private spheres. We have witnessed monumental failures of public interest organisations structured as private corporations: self-enrichment behind the deceit of public service takes a thousand forms. Investors have sought from safe infrastructure investment projects, in the guise of financial partnerships, rates of return that would look unseemly even in entrepreneurial risk-taking. Poor countries have been deceived by expensive service exports wrapped up as aid. Subsidies have gone to industries with influence, tariffs protect the powerful.
Solutions will not be straightforward. Due care and diligence would be well served by more learning from the evidence of successes and failures: how institutions and incentives can be arranged to serve agreed public purposes, from child nutrition to regulating banks. There is an abundance of evidence, yet our understanding is far from complete. The report of the Commission on Growth and Development chaired by Michael Spence rightly endorses Deng Xiaoping’s advice: we have to be willing to “cross the river by feeling for the stones”.
A new global order will have to construct stronger institutions for international partnership, recognising that global co-operation involves both engagement between sovereign nations and increasingly robust commercial and non-governmental networks. Labour standards, healthcare, product regulation, harmonisation of tax systems, co-ordination of transport networks, climate change – we all understand that our interconnectedness requires effective multilateral action to address these challenges. Do we have the courage to ask whether our tardiness in finding solutions to structural and social co-ordination problems accounts in part for the severity of the financial co-ordination failure?
If we can ask world leaders to face this question, perhaps we will make greater progress in finding the appropriate instruments of governance through which the propulsive power of modern finance can be harnessed to serve a development agenda. If we fail to do this, growth and social progress will continue to be the bonded servants of finance capital. But this is not an imperative only for governments and regulators – financial institutions, too, must make a commitment to social responsibility. It was, after all, Ulysses himself who made the choice: “You must bind me hard and fast … and if I beg you to release me, you must tighten and add to my bonds.”
Source: Trevor Manuel, Financial Times, March 16, 2009.
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